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Event-driven hedge-fund managers can't complain about a lack of opportunities. Near-zero interest rates, a U.S. fiscal cliff, possible euro-zone sovereign defaults and banking collapses, Middle-Eastern uprisings, and sputtering global growth are just some of the general categories of disruption in the stock and bond markets.

Sixty-seven year-old Peter Schoenfeld thinks they make for some of the most exciting markets of the post-war era. "The world is confusing, but we like it when it's confusing," says the head of Peter Schoenfeld Asset Management's WorldArb Partners Fund. "There are still big issues out there and that's reflected in the portfolio. We look for short-dated events, where we can capture inefficient pricing of risk around the globe. In our minds, there are a lot of inefficiencies where slight nervousness causes exaggerated responses in stocks and transactions."

To give you a better idea of where the hot spots lie: Recent purchases include Irish and Scottish bank bonds, a U.S. mortgage lender's bank loan, a company doing business with LightSquared, the now-bankrupt wireless phone network that's dragged down hedge-fund manager Phil Falcone's Harbinger Capital Partners, as well as a number of busted private-equity deals.

FOUNDED IN 1997 when it broke off from Schroder Wertheim, Peter Schoenfeld Asset Management oversees roughly $2 billion in assets. Its $1.4 billion PSAM WorldArb fund seeks to exploit these pricing anomalies in securities of firms involved in corporate, tax, or regulatory events—such as takeovers, bankruptcies, liquidations, and spinoffs. The fund has three basic strategies for its 40-80 positions, split into thirds—merger, credit, and special situations, all of which are hedged.

The bull market in breaking news has been good for returns. WorldArb Partners returned 5.3% in the first quarter of 2012 and posted average annual compound returns of 12.4% over three years ended 2011. Since its inception in 1998, WorldArb has returned 7.7% annually after fees, which are hedge funds' typical 2% of assets and 20% of performance. The S&P 500 has returned 3.9% annually over the same period.

The soft-spoken, articulate Schoenfeld is a life-long New Yorker who grew up in upper Manhattan's Washington Heights and earned his undergraduate and M.B.A. degrees downtown at New York University in the 1960s. He first worked at the investment-banking firm White Weld and his last job before leaving the ranks of big investment banks was vice chairman of Schroder Wertheim.

In his long career, he doesn't recall a period quite like this. "What's different this time is we've had zero interest rates, and no one has lived through that before." Even worse than the recent bouts of volatility, adds Schoenfeld, are the large and unusual risks—"like the world's biggest trading blocks coming to grips with the undoing of the dream in Europe."

WorldArb has used the uncertainty to buy debt and equity securities of some unpopular names at bargain-basement prices. Here are some of the highlights:

Anglo Irish Bank and
Royal Bank of Scotland Group
(ticker: RBS): The fund bought Anglo Irish bonds in the summer of 2011, at a discount of up to 30%, and the bonds were paid back at par. The firm bought Bank of Ireland 2013 bonds in the high 80s last year and still holds some; those bonds are trading in the high 90s, plus a 4.625% coupon.

They bought Royal Bank of Scotland preferreds last summer that were trading at $11 to $12 and are now trading at $19, plus a coupon of 6.4%.

Realogy: In 2007, Leon Black's private-equity outfit Apollo Global Management had taken Realogy private just before the housing bubble broke. WorldArb stepped in amid the ensuing crisis and purchased 11% convertible bonds maturing in 2018 after the company, which owns real-estate brands such as Century 21 and Coldwell Banker, got in trouble. Realogy filed in June to raise $1 billion in an initial public offering. Schoenfeld's fund will exit from the convertibles at the time of the IPO either by converting to stock or by redeeming the bonds. Meantime, WorldArb gets a 13.5% current yield.

Energy Future Holdings, formerly known as Texas utility TXU: WorldArb a year ago began buying the distressed secured and unsecured bonds of the company, which was taken private by buyout specialists KKR, TPG Capital and the private-equity arm of Goldman Sachs, in the world's biggest LBO, $43.2 billion, on the eve of the financial crisis in 2007. The sharp drop in natural-gas prices has limited the hugely indebted company's ability to repay its bondholders.

Inmarsatisat.ln -6.33289124668435%Inmarsat PLC ADRU.S.: OTCUSD14.125
-0.955-6.33289124668435%
/Date(1438208400000-0500)/
Volume (Delayed 15m)
:
220
P/E Ratio
20.420702616741362Market Cap
6229886134.76151
Dividend Yield
4.176764601769912% Rev. per Employee
804450More quote details and news »isat.lninYour ValueYour ChangeShort position
(ISAT.U.K.) It bought stock in the satellite and spectrum firm based on an expected shortage of U.S. radio spectrum. Bilotti learned that Inmarsat, which had leased 40% of its spectrum to bankrupt wireless phone-network LightSquared, has protection in the proceedings. Inmarsat shareholders early in 2012 panicked, and the stock fell to 365 pence ($5.75) a share. WorldArb sees another 30% to 100% upside in the price, and sees it a safe way to invest in radio spectrum. The stock's now at about 490 pence.

Yahoo!YHOO -2.004275788348477%Yahoo! Inc.U.S.: NasdaqUSD36.67
-0.75-2.004275788348477%
/Date(1438376400260-0500)/
Volume (Delayed 15m)
:
15018132AFTER HOURSUSD36.59
-0.08-0.218161985274066%
Volume (Delayed 15m)
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P/E Ratio
5.337700145560407Market Cap
34412702840.9857
Dividend Yield
N/ARev. per Employee
389780More quote details and news »YHOOinYour ValueYour ChangeShort position
(YHOO): The fund started buying stock before activist investor Dan Loeb of Third Point took aim at the company. Schoenfeld says he's extremely happy with the new board, and thinks new CEO Marissa Mayer will "try to monetize some of their investments. We think if executed properly the stock should be trading in the low to mid 20s," up from $15.95 last week.

The tumult in Europe, says Schoenfeld, has obscured some potentially interesting investments in the U.S. For instance, he expects the prospect of higher taxes after the U.S. presidential election to prompt a lot of dividend payouts to be declared right at the end of 2012. "Europe has distracted everyone from the U.S." That's exactly the kind of event Schoenfeld looks for.